“Remember that pain has this most excellent quality. If prolonged it cannot be severe, and if severe it cannot be prolonged.” – Lucius Annaeus Seneca (4 BC-65) Roman philosopher and playwright.
“Pain”, and its severity, is the defining indicator for a successful venture opportunity, and no company or industry operates in a truly pain-free manner. Pain is manifested in many ways inside the enterprise: Excessive cost and workflow inefficiencies eating into profits; poor customer experience; lack of innovation; eroding competitive advantage; antiquated business models; stunted growth; poor product performance; ineffective distribution; and wasteful supply chains, among other symptoms. Given this, one could argue that many undiscovered opportunities exist in global industry. The more painful the problem, and the more rampant it is in a given market or industry, the greater the opportunity portends to be for the entrepreneur, though at a greater risk and with greater investment. We call these “boil-the-ocean” opportunities. With boil-the-ocean opportunities, where severe pain is broadly felt by huge swaths of players in vast horizontal markets, a flurry of new market entrants and incumbents attack each other to solve these problems and race toward rapid commoditization. Microsoft, Google, Apple, IBM, Oracle and Accenture, among others, boil oceans very well. Start-ups in this day and age can compete, but scale…and capital…and risk assumption…are all limiting factors going forward.
We, on the other hand, prefer being the first to find opportunities that are under the radar, where severe pain is felt by enough customers in niche markets that make it worth our while…and whose market players embrace a culture of innovation, and accept new, “painkilling” solutions where few competitors dare to compete. Building smaller more profitable painkilling ventures in niche markets, at a lesser cost, greater speed and greater frequency is, in our opinion, far more attractive and less risky than trying to build the next Google.
To build a painkilling venture in a niche market, a successful entrepreneur’s “make or break” is his/her ability to perform these five (5) following functions within a 12-18 month time horizon: (i) Diagnose and measure the severity of pain that exists in any given market; (ii) quantify the ROI of eliminating the pain with a viable solution; (iii) enlist fearless customers who will let you experience their pain and who will share their Intellectual property with you to develop their own “painkiller” and the one for the broader market; (iv) develop an easy and scalable way to enable the market to get inoculated; and (v) demonstrate favorable, pain-free results.
Building “painkillers” requires the same effort as building “vitamin” businesses. However, vitamin businesses develop and market “nice-to-have” solutions for customers who experience pain but have high enough thresholds to continue along tolerantly. Chris Heivly recently wrote a nice article about the differences between vitamin and painkilling businesses in Inc. Magazine entitled “Are You a Painkiller or a Vitamin?” http://www.inc.com/chris-heivly/are-you-a-painkiller-or-a-vitamin.html. For the most part, it describes our prevailing view of entrepreneurship: The path to profits is far more predictable and faster when you can provide panaceas to those in excruciating pain than it is to provide insurance to those who are in good health.
Severe pain in any industry is a true beacon to entrepreneurial opportunities. While all new venture creation is risky, finding under-the radar opportunities can be just as lucrative to the entrepreneur as “boil-the-ocean” opportunities. If your company operates in a niche market and is experiencing severe pain, please contact us. We would like to discuss how we may partner with you to build your painkiller and together, serve your broader market.
A couple of years ago, I took my son to a museum and there, in the lobby, was a 35 foot pachinko game mounted on the wall. Hundreds of discs were wending their way down from the top, each taking its own, unique trajectory downward, glancing off pegs and bounding and branching to the left, right, or diagonally on its own timeframe, eventually hitting the bottom. Some landed to the far right, some to the far left, but most landed somewhere in between…a classic bell curve with 5% standard deviation on each side. Watching this exhibit, I was struck by how it represented the microcosm of our lives. How our days, months and years are shaped by the decisions we make each minute of each day, how luck does or does not befall us, and how the consequences we face, good or bad, as a result, may lead us down a primrose path or into a vast desert. How random is life and luck!
Our pachinko game starts at birth. As we grow, we face decisions each day…thousands of them…and the decisions we make…or do not make…send us through the branches and bounds of life. Should I ask the pretty girl to dance, or cower in the corner? Should I buy the lottery ticket or the chewing gum instead? Should I watch television or go to the gym? Limitless possibilities emerge from each decision you make. Dancing with the girl could lead to a fulfilling marriage (or not); buying the lottery ticket could yield fortune (or not); and going to the gym could bring strength and self-confidence (or pulled muscles). The best possible outcomes, I am convinced, are not driven by their actual decisions but by sheer luck and improbable outcomes. After all, discs that go far right, and then drop down, can also dart to the far left as they descend, signifying perhaps that making good or bad decisions can be rewarded or atoned over time.
To you, the entrepreneur, Luck is your most elusive friend. I do not know one successful entrepreneur who hasn’t been touched by Luck. The magnitude of one’s good fortune is, I believe, directly related to the following five essential elements of creating good luck:
When Luck enters your life, it’s important to know how it may help you. Therefore, having set goals and a strategy to achieve them is incredibly important. If your goal is to grow your company from $1M to $10M, you need to execute a plan to get there. Do you grow organically or acquire? Do you hire additional sales people or create new indirect channels? Developing and executing a well-conceived plan will prepare you to recognize and accept Luck.
2. Risk Much
Luck finds those who risk much to find It. By accepting the status quo and taking the safe route, one doesn’t need Luck since outcomes are predictable. With nothing to chance, there is no chance for Luck.
3. Be Timely
Being in the right place at the right time is paramount. Without good timing, or good market timing for your solution, Luck will seldom come. Praying for a market to form is not Luck; it’s an Act of God…and there is big difference between that and Luck. Timing in business or in a relationship or in sports is everything when it comes to Luck.
4. Be Aware
If your eyes are closed and your mind is shut, Luck will never find you. Knowing your situation, strategy, timing and risk makes you aware of opportunity. The connection between awareness and opportunity is Luck.
5. Keep Dancing
Luck is a rare gift and it may not come frequently and easily. The key is to keep dancing…to persevere…to keep working hard to achieve your goals and to climb under, around, and over obstacles that get in your way. Luck will never find you if you quit.
To find and keep Luck in your business, marriage, health and life in general is a precious gift. Prepare for it, risk much for it, be timely for it, be aware of it and keep dancing to seize it.
“If one is lucky, a solitary fantasy can totally transform one million realities.” – Maya Angelou
Your product works in the safe confines of the lab; your pilot customer is satisfied; and now you need to scale. Congratulations! You are now at the mouth of the “valley of death”. Companies are born when successful projects are converted into packaged products or solutions which are then morphed into organizations that can profitably support them. This osmosis is difficult, Darwinian and fraught with risk. How start-ups survive through the valley of death is driven by your guile and determination and your preparedness to constantly manage crises and iterate your business…all with limited resources and cash.
You accomplished the first challenge; you won fearless customers who helped shape your product to run in their environments. Now, you must steel your product to work in all environments in the markets you seek. You know, the bugs you did not expect when rolling out your application on the myriad platforms and versions that your product does not yet support, and the edge use cases you did not expect from the simple and unintended consequences of user error that will flood your call center staffed by you and you alone. Congratulations again!
No doubt, crisis management, specifically in terms of how you support your product and your customers, will be the singular most important skill you must acquire to survive the valley of death. Entrepreneurs are, by nature, excellent problem solvers and planners but not all entrepreneurs are savvy crisis managers. These five (5) lessons-learned will help you be better crisis managers and help you steer your companies through the valley of death:
1. Diagnose Quickly.
When trouble hits, avail all resources to diagnose the problem accurately and quickly. Turn over all stones and when you have pinpointed the problem, very clearly write down the exact issue, in non-technical, easy-to-understand prose. Why? See lesson three (3).
2. Plan for Today and the Future.
I had a B-School professor who would often say that “when you have to eat shit, don’t nibble”. That is, make sure that the problem you face does not rear its ugly head again. So plan thoroughly and make sure that you have solved the problem for today and for the future, with contingencies. That means, assemble a team (it might just be you) and brainstorm all possible solutions to the problem you diagnosed. Consider the pro’s and cons to each, measured by cost, benefit, complexity and expediency to implement and select the most optimal.
3. Communicate Clearly and Often.
With your diagnosis and plan in place, immediately communicate to your stakeholders (customers, partners and investors) the problem you face, your best diagnosis in plain English and your plan to solve the problem and timeline. Then, after you solve the problem, assure your stakeholders that this issue will not happen again.
4. Solve and Assure.
Get it done, completely, quickly and forever! Test the solution and make sure it passes your quality assurance standards today and in the future. Make sure that this problem does not crop up again.
5. Remunerate Fairly.
Consider the financial implications that your problem caused your customers and factor this remedy into your crisis budget. It is the cost of doing good business and will pay dividends to you in preserving and restoring goodwill with your customers.
Armed with this five-step game plan, you will be equipped to soldier your business across the valley of death to the mainstream market and beyond.
Before there were “early adopter” customers or even “innovator” customers (so named by Geoffrey Moore in Crossing the Chasm), there were “fearless customers”. Fearless customers are every entrepreneur’s BFF. They are the active ingredient in turning a lab experiment/project/skunk-works effort into a commercial product or service. They are in the trenches with the entrepreneur; they risk the pitfalls associated with buggy software, kinks-in-the-product, incomplete solutions, and the inevitable delays in turning around new features. They represent vital sources of intellectual property and are willing to transfer many of their ideas and industry insights to the entrepreneur in exchange for a solution to their painful problems.
When architecting products or services, there is an inevitable migration from the safe laboratory to the brutally honest world where all hypotheses are challenged and many, if not most, fail quickly. Fearless customers increase the probability that entrepreneurs can convert an idea into a commercial product, and they help harden and propel a new product or service into the early adopter/innovator world. They provide market validation (credibility), funding and invaluable intellectual property…three key ingredients that entrepreneurs cannot collectively get from seed investors or venture capitalists at such an early stage.
In reality, there are very few fearless customers in any given market, far fewer than there are entrepreneurs. Finding them, selling them and winning them are instrumental to the success of any new venture. Here are the six (6) main attributes of fearless customers:
1. Innovative Spirit
Fearless customers are massively innovative. They understand where their market minefields are and how close they are to stepping on them. They understand the need to get in front of the market, ride the next innovation wave and accelerate their growth, which can be measured in terms of greater profits, greater competitive advantage or less business risk.
2. Market Leadership
Fearless customers have market influence. They are market leaders and not followers and are not only the best-run firms in their market with the greatest margins, they are admired and imitated by their competitors. Internally, fearless customers have a leader or a group of leaders who are unafraid to risk their political capital and reputation to move the company forward and drive innovation to yield fantastic growth.
3. Massive Pain
Fearless customers feel massive pain and are urgent about relieving it. Ranging from the high cost of doing business, to flat revenue growth, to loss of market share to a nimbler competitor, fearless customers understand that their pain is a bet-the-business issue that will result in inevitable death if it isn’t addressed urgently.
4. Patience, Tolerance and Persistence
Fearless customers understand the travails associated with launching new products and hence, new ventures. They stick with the entrepreneur through glitches, bugs and delays and keep their eyes on the prize…a solution that will yield growth and competitive advantage.
5. Understand Core Competency
Fearless customers know their business cold and understand what they are good at and what they are not good at. “Not invented here” is not in their vocabulary. Fearless customers understand that entrepreneurs know how to convert their problems into solutions and into new ventures, freeing them up to concentrate on quarter-to-quarter production and focus on their core business.
The entrepreneur’s job is to align new product or service concepts with the fearless customer’s mission. Once alignment is achieved, the entrepreneur will feel a force multiplier effect as the fearless customer avails unforeseen resources, including development and working capital, personnel and intellectual property, to solve its problem.
Fearless customers are an incredibly important ingredient in converting an idea, problem or innovation into an effective product, service or new venture. “Catching” them is akin to whale hunting personified in the selling world. They are hard to hook, but once they are caught, they require every ounce of an entrepreneur’s attention, dedication and time. If tended to properly, fearless customers can sustain the entrepreneur in so many beneficial ways.
I have been literally heads down since mid-January, my last blog post, consumed in building my next venture. I am firmly entrenched in the entrepreneurial arena and risk much to be relevant. Coincidentally, it was in mid-January that my father passed away. He was an entrepreneur who risked much in the arena as well. I remember all too well the many days he would leave home wearing a suit and return home from his scrap metal business with mud on his pant cuffs, dirt under his fingernails and grime on his dress shoes, manning the crane or driving the truck because his company was under-funded, undermanned and under-resourced. And yet, each night he came home, he cleaned his shoes and arose the next day trying to fulfill customer orders he closed the previous day…by any means necessary…even if it meant manning the crane to load the scrap metal and steel on a flatbed truck that he would personally deliver to his client. My Dad’s story isn’t new and different. Being an entrepreneur means doing everything and anything necessary to build value in a business and if that means driving the truck to deliver goods to get paid, you do it. That said, many entrepreneurs never stand back a few feet, take a deep breath and actually observe what in fact they have built. The day-to-day pressure of meeting payroll, fulfilling orders or planning for growth make it especially difficult to derive satisfaction in any meaningful way…but I believe it is a necessary exercise. My Dad never took that deep breath.
In this venture, I am learning to take that deep breath. When my nose is pressed to the grindstone, I somehow lose all perspective of the enormity of purpose and sense of progress that I make, while being pushed by a greater sense of urgency to get to market as quickly as I can, on my own compressed timetable and not on someone else’s. The mind-boggling detail and inter-connectedness that is required to convert an idea into a real product and ultimately, into a new venture, defies logic, especially when you factor in how many obstacles stand between you and your first profitable dollar. It is hard work in the arena but it has been the most satisfying year of my entrepreneurial career.
“An idea is a greater monument than a cathedral” – Henry Drummond
In the play “Inherit the Wind”, written by Jerome Lawrence and Robert E. Lee, the venerable attorney, Henry Drummond, argues that his defendant, Bertram Cates, had the inalienable right to espouse his ideas on Evolution to his students in 1925. Instead, he was vilified by the community, prosecuted for his heresy, and left dangling in the wind, subject to popular opinion. Drummond argued that “an idea is a greater monument than a cathedral”, perhaps suggesting that Cates’s contrarian ideas are far more valuable and poignant than the Bible-thumping Hillsboro, Tennessee citizens perceived them to be.
In my career, I have come across many Bertam Cateses and I admire them. Call them inventors, subject matter experts, principal investigators, tenured professors, entrepreneurs…they all believe that their ideas are greater monuments than cathedrals and are not afraid to declare heresy to the world. Heresy is innovation, inside out.
Many “idea-ists” are the anti-Cates, they are vested in their ideas; they hold on to them tightly and somehow believe that theirs will change the world because the ideas merely exist. These idea-ists convince themselves that their ideas are too good to implement with others who perhaps bring different skills to the table and consequently, the ideas rot on the vine without any shot of being reduced to practice. These are the same people who think that their ideas, or the resultant products, should sell themselves bereft of any market intelligence or packaging. They believe owning 100% of their ideas without moving them along an inch are worth far more than owning far less with others who can move them along a mile. How sad is it to think that such emotional investment can deprive consumers, and society, of the real benefits that ideas can yield.
“Capital isn’t that important in business. Experience isn’t that important. You can get both of these things. What is important is ideas” – Harvey Firestone
Every great company (or monument) is borne from a great idea. Viagra, the iPod, Facebook, the Model T…these ideas were reduced to practice by skilled entrepreneurs who knew how to convert them into profitable ventures. Invariably, a culture formed around the idea, the processes, and the people, who converted them into real consumable products and services. This culture was fomented by the simple view that the idea would change the world, that the opportunity was too great to not try, and the lack of resources and capital should not be an impediment to success. A clear and consistent objective was communicated around the idea and all stakeholders were rewarded based on a successful outcome of the venture. However important the idea is, there is equal weight and importance on the culture, required skills, attitude, strategic importance and the reward system attributed to convert these ideas into revenue producing entities. Advancing a concept, and quickly converting it into a tangible product that a customer can easily buy and consume is an earth-moving accomplishment!
“I have not failed. I’ve just found 10,000 ways that won’t work” – Thomas Edison
The great paradox of entrepreneurship: If you want to create a culture to successfully convert ideas into profits, reward failure. Invariably, failure is the fertilizer for success. Organizations must realize that it is far riskier to allow their intangible assets and ideas to sit on their shelves than to invest skill, money and effort into monetizing them. Once organizations accept this logic, it can build a process to vet new ideas and figure out quickly whether or not the market will accept them or reject them. This isn’t failing…this is concept iteration while applying lessons learned. Iteration advances an idea further with the benefit of failure. Organizations must also reward persistence since concept iteration doesn’t reap rewards overnight. But when a market vein is discovered and tapped, organizations will quickly see a return on their innovation investment that will far exceed the opportunity cost of letting a good, unproven idea sit on the shelf.